KYC or Know Your Customer/Client is normal in the investment industry. It allows brokerage houses to find out more about their customers. Usually, this process is done during the onboarding stage and is a requirement mandated by SEBI. Brokerage houses have to comply with the KYC requirement and that allows them to monitor transactions and manage risks.
Previously, KYC was done manually, where customers/clients had to meet a representative of the brokerage house and submit the necessary documentation. Thanks to the advent of the internet, it is not possible to sit in the comfort of your home and complete the KYC process.
KYC for Trading and Demat Accounts
You have to complete your KYC during the trading and demat account opening process. You will need to have scanned copies of all the relevant documents to complete the digital KYC process and that helps the brokerage house with online ID verification. It also enables the brokerage house to keep track of the flow of funds to ensure there is no money laundering taking place.
It is important to remember that you will not be able to activate your demat account if you do not complete KYC. You will need to fill out the KYC form at the time of opening the demat account. Demat full form is dematerialization – it keeps a digital record of all the transactions you make through your trading account, be it buying or selling shares and other financial instruments.
You do not have to worry about your data as it is stored in a central server with optimal security. You need to do the KYC process just once and thereafter, the necessary details are directly taken from the server by linking the information to your PAN card.
Steps in KYC
Here are the steps involved when you begin the KYC process:
- Filling out the KYC form when you open your demat account the first time. You would need to fill out your name, home address, office address, nominee details and sign the form.
- After submitting the KYC form, you would need to submit identity proof, which can be your Aadhaar card, driver’s license, voter ID, or passport. It is mandatory to also submit your PAN card as your details have to be linked to the card, as required by SEBI.
- You would also have to provide proof of home address. The proof you submit should have your home address in the same format as mentioned in the KYC form. You can electricity bill, bank statement or company letter as proof of address.
- Lastly, to link your bank account to your trading and demat accounts, you would have to submit a cancelled cheque that mentions your name and IFS code.
Before digital KYC came into the scene, the entire process of customer/client verification used to take time. However, now, it happens in minutes and you can open a demat/trading account within no time and begin your investment journey.
Importance of Digital KYC
All registered brokers, depositories, and brokerage houses have to follow and comply with SEBI guidelines. Due to digitization, the KYC process can take place within no time. Since it is paperless verification, it is transparent, cost-effective, and happens in real-time.
One of the major problems that the share market had previously was the source of funds used for investments. It was difficult to trace the money and hence, the share market was misused by unscrupulous people and entities. Today, digital KYC creates an audit trail so that the source of funds can easily be traced, ensuring that there is no money laundering taking place. Furthermore, the digital KYC process prevents identity theft and fraud.